Interesting Times: Wanted: A true anti-poverty lobby

Do we want to continue to throw slogans at each other or look at the real reasons for stagnation?

saul singer 88 (photo credit: )
saul singer 88
(photo credit: )
A new report from the Adva Center on inequality in Israel produced a spasm of articles this week, presumably beefing up economic debate within the current election campaign. The report found that income disparities grew since 1990, as the income share of the top 20 percent of Israeli earners rose from 40% to 44% (compared to 6% for the bottom quintile), while the income of the remaining 80% either dropped or remained unchanged. Another report, by the UN Development Program, found that Israel ranked 49th among 124 countries in income equality. In addition, the Adva report found that Ashkenazis earned 136% of the average wage, Mizrahi Jews earned the average, and Arabs earned 75%. These are disturbing figures. Nor do we really need such research to tell us of the enormity of the gaps between the wealthy and those who subsist on NIS 3,000 to 6,000 a month. Yet the level of the public debate on this subject is pitiful and tends to make matters worse. The vague sense given is that "capitalism" is to blame, as represented by Binyamin Netanyahu's reform program as finance minister. Our discourse labors under two rather large misconceptions: That free markets are necessarily in conflict with social justice, and that our economy represents the epitome of capitalism. The truth is that there is barely any correlation between free markets and income distribution. According to one comparison, by the Fraser Institute, the countries that score lowest on economic freedom also are the most inequitable. This makes sense: The poorest countries also tend to be kleptocracies. At the same time, however, there is little relation between the size of income gaps and free markets among more developed economies. What is clear, is that some of the most advanced economies, including some with very little social spending, have a high degree of income equality - Taiwan comes to mind. The Scandinavian countries, by contrast, spend much more on welfare programs and achieve similar income distributions. Then there is the tendency to equate social spending with socialism, which is also misleading. Sweden, for example, is very capitalist, in the sense that it maintains a competitive, business-friendly environment. The question is whether we want to continue to throw slogans at each other or look at the real reasons for stagnation and inequality or, better yet, at what can be done about it. The greatest source of poverty is unemployment. Our unemployment has dropped from a high of 11% during the last recession to 9% today. But the most telling figures are for labor force participation, which in Europe is over 90% for most university-educated workers. In Israel only 85% of Jewish men, our most employed group, are part of the labor force. The figures for Arab men (77%) and women (23%, compared to 77% for Jewish women) go far in explaining the concentration of poverty in that sector, and among haredim, who also participate much less in the work force. YET OUR economy's basic burden remains a level of government ownership, regulations and taxes that is much closer to what existed in the US and UK before the Reagan and Thatcher revolutions of the 1980s than where those countries are today. Despite Netanyahu's efforts, and despite the real shrinkage in the size of government in the past three decades, we remain a pre-reform economy in international terms. Though the government's share of GDP has dropped from roughly 60% to 40% (not including debt repayments), the comparable figures for the UK and US are roughly 35% and 30%, respectively. But it is not just the size of the tax burden, it is also how these funds are collected and spent. Two simple reforms could, together, cause unemployment and poverty to plummet: a flat tax and employer wage subsidies. A flat tax would allow income taxes to be lowered greatly, stimulating growth and efficiency, while reducing cheating and keeping tax revenues high. Economists, and even governments, of all stripes are increasingly coming around to flat taxes as the best way to stimulate growth, which in the end is the only source of government revenues. Even the US has been studying this seriously, but there is no reason why Israel can't jump from being behind the US in rationalizing its tax system to being on the cutting edge. The other great reform would be to stop spending billions on subsidizing capital - to help companies build factories - and instead use these funds to subsidize employers who hire entry-level workers. Making it cheaper for companies to hire people is the most efficient way to produce jobs. If these steps were combined with continued privatization, deregulation and efforts to increase competition, we would finally become more of an opportunity society - a place where the job market is booming and young, educated people are attracted rather than driven away. These are the steps that the "social lobby" should be pressing for. In this respect, Amir Peretz, as the representative of the big anti-privatization unions and of the vested interests of the old economy, is the least "anti-poverty" candidate in the race. This doesn't have to be so. In some other countries, the unions are just as interested in the health of the economy as the government, and are not constantly cutting off the branch they are sitting on. But until the "social" agenda becomes something other than a lobby to reverse the reform process rather than adjust and accelerate it, people who care about ending poverty should be looking elsewhere for their leaders. It is a shame that, for all the talk about the poor, not a single party has embraced policies that would quickly reduce economic inequity.

- Editorial Page Editor Saul Singer is author of the book, Confronting Jihad: Israel's Struggle & the World After 9/11